The pros and cons of funding commercial disputes

The commercial dispute funding market has expanded in recent years, opening up a variety of possibilities for businesses looking to resolve disputes and mitigate their risk at the same time. However, there are many different paths to resolving a dispute, and not all case funders are created equal.

We covered the basics of litigation funding in part 1 of our series on the subject and explored why an increasing number of businesses are turning to it. As commercial dispute funding becomes an increasingly popular resource for businesses to tap into, the number of decisions to be made when researching funding options also grows.

The traditional litigation funding pathway has always had its pros and cons, which we’ll examine in this article.

The advantages of funding a commercial dispute:

There’s a reason why litigation funding has grown in popularity over the past few years — if you or your business has a dispute but you don’t have the funds to take it forward or don’t want to be exposed to unknown financial risk, it gives you a viable alternative to simply writing off what you’re owed.

• The financial risk is shared or transferred completely

The cashflow burden of funding the costs of litigation can be transferred in whole or part to the funder, and if the case loses the funds invested are not repayable. Having the backing of a litigation funder is akin to an insurance policy, as it can balance the financial risk by covering legal costs.

• Businesses can pursue multiple disputes

Companies don’t have a bottomless legal budget, and some are unfortunate enough to be involved in multiple cases at once. External commercial dispute funding means that they don’t have to pick and choose which ones to progress.

• It’s not just for multi-million-pound claims

While it’s true that higher-value claims are often well suited to commercial dispute funding, smaller claims are also eligible to secure financing. Continued expansion of the litigation financing market has made it more affordable and accessible to SMEs. 

• Funding a case sends a strong message to opponents 

Legally, the opposing side in a dispute is made aware of any litigation funding agreements in place. Whilst they won’t be privy to the exact terms of the arrangement, it may encourage them to come to an amicable agreement sooner. Having litigating funding in place is a powerful tool to use as leverage, as the opponent realises that the other side has nothing to lose financially and is potentially in a position to take the case all the way to the High Court. 

• It weeds out weak claims

A funder’s backing of a claim acts as a seal of approval and further validates your actions. Given that the court system is already overloaded, only the most viable claims ought to make it into the system. The extensive due diligence that claims go through before being accepted by a funder also weeds out more fragile claims.

• Legal costs are taken off the balance-sheet

Financing a claim helps ease cash flow and allows for viable cases to be pursued, even if the company doesn’t have the funds available upfront. It also frees up working capital in the business and allows funds to be diverted into investment and future growth. This makes it suitable for businesses that have viable claims but short-term cashflow worries which will be eased once a claim is won. 

• Access to specialised legal professionals

Not many in-house legal teams have specific litigation knowledge and would need to outsource this area. Reputable dispute funding solutions work with you in partnership, and often come complete with access to specialised legal advice.

The disadvantages of traditional litigation funding:

Funding your commercial dispute through the involvement of a funder typically comes with some disadvantages, as we set out below.

• Loss of control

Funders are likely to request some degree of input into decision-making. In some cases, they may also have the final say on tactics, or reserve the right to approve any settlement figures offered.

• The percentage cut taken by the funder

The funder’s share is negotiated at the outset and is only payable upon the successful resolution of a case. Typically, it’s either a fixed percentage of the final proceeds, a multiple of up to three times [3x] the original amount invested, or a combination of the two.

• ATE Insurance adds a further layer of cost

Litigation funding triggers the introduction of an After The Event (ATE) insurer and therefore a third stakeholder and decision-maker. 

A funder will require the SME to obtain ATE insurance to protect its investment in the event that a claim is lost. It is possible that the funder will cover the upfront cost of the insurance premium, but   this will be added to the advance against which the return of the funder is calculated. 

• Case packaging costs:

All litigation funders do their due diligence when assessing a case. Typically an interested funder will want to see a full list of key documents and evidence, any legal advice received, information on the opposing side’s position, and a detailed budget of costs. All of this takes time and resources to prepare, to give a case the best chance of acceptance.

Even if your case is accepted, you may still be left out of pocket for preparation expenses, as any costs incurred before a funding arrangement is agreed upon generally aren’t covered.

For all these reasons, particularly on claims valued below the £1 million mark, some SMEs will view the overall costs associated with litigation funding to be prohibitive.

Where does Escalate fit into the commercial dispute funding picture?

It’s easy to see how the commercial dispute market has been skewed against SMEs for some time, with unknown financial risks and high upfront costs at stake. Whilst litigation funding has helped ease the financial burden, it can still be a cumbersome, drawn-out process with multiple parties involved. It’s also still an unviable option for many sub £1 million claims, as the returns sought by the funder and insurer largely extinguish any anticipated returns.

Escalate was created with a vision of bringing case funding and legal expertise into one simplified packaged solution instead. Our ‘all-in-one’ process combines these built-in features with full cost protection against case loss, and no fees to pay unless we resolve your case. 

Our Co-founders, Chris Clay and Nick Harvey, spent seven years researching and devising their strategy to ensure that Escalate was unique to the market. Since then, we’ve helped thousands of businesses that had previously been failed by the traditional legal system to settle their disputes.

No unexpected costs — we work on a fixed fee basis

One of the most common predicaments that businesses agonise over when deciding whether to use litigation funding is the final cut that the funder is entitled to. 

Our viewpoint is that even after taking this share into account, it’s still better to receive a significant percentage back from your dispute than nothing at all. 

We work on a capped fee basis of 35%, which guarantees that you’ll always be the main beneficiary of any settlement figure. Because we work on a fixed price, there’s no hidden surprises later on down the line. There’s also nothing to pay the other side in the unlikely event of us losing a case.

No case packaging costs — we give you a free assessment first

Each case is given a free legal assessment before we decide to take it on. If we believe a case is unviable or unsuitable for litigation, we won’t waste your time and will instead suggest alternative options to consider.

For claims that are already progressing and have undergone legal checks already, all the financial risk is transferred to us once we accept your case. We’ll also work to recover any costs you’ve already incurred before engaging with Escalate in the final settlement.

We only invest in claims that we have full confidence in resolving, and have a successful track record to prove it. From breach of contract to IP infringement, there’s an Escalate case study to back up the millions that we’ve recovered for clients so far.

The pros outweigh the cons when it comes to commercial dispute funding

Commercial dispute funding has undoubtedly opened up more avenues for businesses to pursue cases that would otherwise have been written off altogether. The difference with using Escalate is that we’re the only unique packaged solution that combines all the elements needed for successful dispute resolution together. 

The ‘Escalate’ all-in-one packaged solution provides built in legal expertise, case funding, and full cost protection against case loss – all for a capped fee that is only payable upon successful resolution and which guarantees you will be the main beneficiary of the claimed amount.

For cash-strapped businesses and those who are stuck in litigation uncertainty with a case that’s stalled, Escalate has provided a lifeline to allow them to carry on trading. It’s also removed the hassle of managing commercial disputes and finalised timely settlements for thousands of cases. 

If you’d like to discuss how litigation funding can help resolve your commercial dispute, please get in touch.